I talk to potential buyers every day. Most of them give me a call about a specific property they have seen on the Internet that they want to see right away.
At some point in the initial conversation, I ask if they have talked to a lender about prequalification. Most admit that they have not, but indicate that they have excellent credit and have purchased many homes in the past.
Often, when I try to tell them that the criteria for obtaining a loan are much more stringent these days, they feel like I just don’t want to show them the property. That is only partially true. I don’t want to show them property until they talk to a lender.
There is nothing worse than having a buyer fall in love with a property that they later discover that they cannot purchase. It is morally devastating and a frustrating waste of time and effort.
It is much better start the process correctly, and to have a preapproval letter in hand, ready to attach to an offer to purchase. No time is lost, and the offer is much more appealing to the seller.
And even more importantly, it is better to discover potential stumbling blocks early in the game, when they can be addressed and corrected.
So when I ask a buyer to speak to a lender, I am not putting them off unnecessarily. I am only doing my job as a professional to serve them better.
And to help you get the best deal on your next home purchase.
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They need this first...The candy comes later. The credit to be extended is what they can shop for. I feel like I shove buyers away with this move but in essence they come to understand how important this is.
It certainly makes our jobs easier if buyers have all their "ducks in a row".
Richard, I couldn't agree with you more! There are just those folks that don't understand, no matter what you tell them.
This happens to me all the time, and I'm sure the potential buyer keeps calling agents until they can find one hungry enough to show them the property.
Richard,
More important now than ever before.
Rich
I agree. I always send them to someone before we head out. I am going to reblog this.
That is great advice to also avoid becoming a tour guide! Thanks Richard!
Claude...
Today, more than ever! Thanks.
Tammie...
It an absolute necessity. Thank you.
Andrea...
And they are shooting themselves in the foot! Thanks so much.
I do the same thing you do Richard. Banks are more stringent now than ever before. They want everything short of a blood sample!
Richard, this is such good advice, and I'm always amazed at how reluctant some buyers are to take that importnat stip!
I agree with you. And besides what if they qualify for more than they think they can? Even though it doesn't usually go that way.
We will show them a house or 2 the first time-then its off to the lender unless we have determined they can do something, then its off to the lender anyway.
I met with a buyer this evening and that conversation *before we saw any homes, went well. He was skeptical of "pre-qualifying" because of a "soft hit" to his credit score for the check. But after I suggested he call and discuss this with a loan officer I knew I could reach after 5 p.m. he felt much better and agreed that tomorrow he'll be going to the bank. This evening I showed him the house he wanted to see.
It's frustrating when buyers don't believe us, and don't want to adhere to our advice. I've started having my mortgage people call the buyers ASAP. I don't wait for the buyers to call them.
Never before has this been as important. We should not take on clients that are not pre approved.
Never before has this been as important. We should not take on clients that are not pre approved.
Richard, same thing here. When potential buyers tell me they have excellent credit and it will be no problem, I advise them that in today's market accompanying every offer should be a proof of funds letter or a prequalification note. Some offices are simply not accepting offers without them, and for REO, short sales it is mandatory.
Being pre-qualified is more important now than it's ever been before. It used to be that if you returned all your library books on time, you would qualify for a loan! That's just not the case anymore.
So many Realtors act as Cab drivers:(
The lender input also enable us to structure the offer best for the buyer/s unique situation.
For over 25 years, NO buyer ever got into my car without meeting first with a lender and me talking to the lender!
Absolutely a MUST! It amazes me we still have some agents who call us when writing an offer looking for a pre-approval, only to find out that being self employed for a year does not qualify their buyer, or the FICO score is a 560, etc. Shame on them for wasting their time like that!
Pre-approvals are so easy to do, it's a no brainer!
Thanks Richard! I have agents with 20+ years of experience who show property before they speak to me or another lender. They feel once they are under contract we can force it through. With changing laws and a loss of 90%+ of our mortgage products, this is hard to do.
Most important, please don't accept a listing until we have spoken to your listing client also unless they don't mind apartment living. Clients we've done loans for a few years ago just don't realize the dramatic changes in our industry.
Absolutely! I think it's a waste of everyone's time if there isn't already a pre-approval for a loan in hand. We all run around and look at homes only to disappointed in the end and have to start all over. No thanks, I'd rather start right from the beginning!
I agree 100%. Well said Richard.
I agree 100%. Well said Richard.
Morning Richard, I hear the " I have great credit - it won't be a problem." thing all the time. Getting them to have trhat conversation with the lender is critical.
The lending market is no where near as tight in Canada as it is in the USA. However, getting pre-approved, and realtors 'enforcing it', is definitely the right thing to do. It helps to ensure that the client's expectations are realistic and that everyone's time investment is respected - client, agent(s), sellers.
We are in a seller's market across most of the major markets anyhow here in Canada. So multiple offers are the norm and those offers with pre-approval letters will stand out as being to everyone's advantage.
We have new regulations coming in April 19th designed to take some of the 'steam' out of this hot market. As of then, clients need to qualify based on the 5 year posted fix rate versus the 3 year rate when seeking approval for a product at a lower rate such as an VRM (or ARM as Americans call it).
A couple things that Realtors need to be particularly aware of and therefore help counsel their clients on with respect to LTV:
1. Many lenders and insurers such as CMHC, Genworth, AIG are often coming back with lower valuations of properties than we're accustomed to. Realtors should guide their clients to say properties with selling prices a lower than the approved limit - 10% lower would be 'safer' for example. Of course there is no 'absolute' - at least keep it in mind.
2. The maximum LTV on a non owner-occupied home will now be limited to 80%. Used to be 95% for some lenders.
Getting pre-approved for the 'right product/term/rate' is also important. Most lenders guarantee today's rate for up to 120 days, but only for the particular product/term/rate applied for at pre-approval. And with rates set to start rising (significantly) some time in June 2010, it's all the more reason why it's in the best interest of the client to secure a pre-approval.
Lastly, Reatlors who don't encourage their client to engage a mortgage agent, versus a lending institution's representative, may be doing their client a disservice. A mortgage agent represents the client's interests, not the lenders'. We'll work to help we guide your client on how to save money, not maximize revenue for the lender. And in most cases, in Canada anyhow, mortgage agents are compensated by the lenders adequately enough that we don't need to gouge the client - particularly when we're working with referral partners such as realtors rather than spending tons of money on advertising, etc.
I totally agree with you Richard! In the Cape Coral / Fort Myers, FL area most sellers are requiring proof of funds or a sold pre-qual letter be submitted with the offer. If one or the other is not submitted with the offer it doesn't even get considered. Of course this is due to the large number of bank owned homes and short sale homes on the market. If the buyer isn't willing to speak with a lender prior to looking at homes, most likely they are not very serious about buying.
I have been in business only eight years, but in that time, I have always required a buyer to have started with a lender BEFORE we go out looking at homes. Why tease someone with a $400,000 home when they are only qualified for $225,000? Or worse, wasting your time and gas when they are not qualified at all for a loan? Regardless of markets, ALWAYS start with a lender... PERIOD
Sorry, Mr. A+ Buyer, even you need a pre-approval. Now more than ever, it is imperative that buyers speak with a lender before shopping for a home. I know people hate to hear it, but good/excellent credit, stable job, good income, no BK or foreclosure...IT JUST ISN'T ENOUGH ANY MORE.
Showing houses to buyers who haven't talked to a lender is like taking an overpriced listing.
I tell buyers that is the first step in buying a home. Much of my market is dominated by foreclosures and I explain that lender pre-approval (or proof of funds if paying cash) is a requirement of any offer. Also, unfortunately, my market has a large amount of hopeful buyers who have big credit issues. I have to prioritize and taxi service is not high on my list.
Richard, buyers looking at a home before speaking with a lender is very much like putting the cart before the horse. I've made that mistake before, but I haven't made that mistake in a good while. If that means I lose potential clients to someone else who will preview homes without the necessary documentation, then so be it.
Not only that they need to talk to a good lender, not someone who is pie in the sky type stuff.
Amen, Brother Richard!
That makes our Job 100 Times easier also!
Gives us time to fix problems up front and better advise!
Thanks,
Excellent advice. I hear the "I have great credit" line several times a week. Most buyers, even some agents, don't understand that credit is only one piece of an approval. Debt to income ratios are much tighter than in the past. Un-reimbursed business expenses on tax returns can be a show stopper. Then you get to assets. Conventional loans are now requiring increased reserves.
I typically have at least 1-2 buyers per week that don't qualify that were supposedly "Pre-Approved" by someone else only days earlier. They will often admit that they never actually supplied documentation to obtain that "Pre-Approval". It still amazes me how many loan officers still don't know how to accurately Pre-Qualify buyers.
Richard - There are in fact 20 factors besides just the credit score that lender review and many of them have nothing to do with credit at all!
Most potential home buyers need to understand that this market no longer approves loans on credit scores as the primary criteria, especially since many of the foreclosures are people who had great credit scores at the time of approval.
Your post inspired me to write a blog post listing the 21 factors - you can view it here - http://michiganmortgageadvisor.com/21-factors-reviewed-when-qualifying-for-a-michigan-refinance-or-purchase-mortgage-and-only-one-is-your-credit-score/
Please take a look at let me know if this might help any of your buyers, and feel free to link to it.
Thanks,
Michigan Refinance
Could not agree with you more!
The way I work is that I will show one house to anyone without even talking about financing (unless they bring it up). During the showing I go over why they should be pre-approved, different loan products, etc and perhaps most importantly, give them the names of a couple of lenders that I know are good at what they do and who have access to the type of program the buyer needs. If they don't drink after being led to water, I can't help them.
Everyone gets one free ride. It seems to avoid alienating a potential client before I get the chance to form a relationship and gain their trust. Do I end up showing more than necessary that way? Absolutely. But I look at it as an investment in future business for someone who might be qualified in a few months. And hey, maybe I should have previewed that house anyway.
Excellent post! Some people get so put out when I suggest that they get prequalifed first. I figure if they're serious buyers they don't mind; if they're not, I'm better off knowing up front.
Excellent post! Some buyers get put out by this. So be it. I'd rather know up front than be a tour guide. I've made this mistake before. If the buyer is serious, they have no problem getting preapproved.
A lot of our work involves cash purchases. I know that WE require people to show proof of funds before we show premium properties.
I imagine that the few sales you lose pales in comparison to the time that you would lose. I'd take that tradeoff.
If there is one thing that all the bank owned properties should teach Realtors is that a seller is not going to look at a buyer's offer unless they show proof they can purchase a home. Doesn't matter if a buyer is financing or is paying cash. Doesn't matter how many times the banks changes guidelines.
What are Realtors afraid of that they have to make all these stupid excuses to get the buyer to show proof they can buy a home. Do you run a business or do you run a free service for the world? Do you want a buyer who is looking for a show hostess or looking for a professional? As a professional it's my job to make sure a buyer is prepared to buy a home. Step one is how is the buyer going to pay for the home and where is the money coming from. There are several other steps, but this is the first step.
If the buyer is not prepared to buy a home than we don't look at homes. Agents who do not prepare their buyers to buy a property are commission hungry and that is what is foremost in their minds. My goal is to look out for my buyer's best interest and to do that the buyer has to trust I know what I'm doing. Don't you want the buyer to know you know what your doing? I fell that buyers who want to work with a professional Realtor are very happy to listen to their Realtor and take the necessary steps to move forward in purchasing a home.
Do yourself a favor and let the buyer know you want to meet with them first before showing them homes to discuss the process in buying a home. This separates buyers who jump from Realtor to Realtor and who are serious about meeting with a professional to look out for their best interest.
It takes a lot of work and education to do a good job. Don't you want to work with someone who respects that kind of person?
Richard, I have completely stopped showing homes to anyone who has not, or refuses to, gotten pre-qualified first. I've seen what seems like 'solid' home buyers get denied for the loan or dollar amount, so I need to know upfront if we even have the potential to put something on paper should we get to the offer stage. Great post.
I work will seller most of the time but my buyers agents and I will go and show the property they called on but after that it is only with an approval letter in hand.
You can bring a horse to the trough, but you can't make it drink. But I do not want to spend my energy on a buyer that will not see a lender.
I think speaking with a lender first shows signs of a serious buyer - not a tire kicker!
I ask them this question and some look at me like i lost my mind. We have to set the tone FIRST or they will try to run all over us.
I just learned the best line ever from one of our office's newer, but very gifted, agents. He tells his new prospective clients that he prides himself on the fact that he has never shown a client a house that they fell in love with that they later find out that they couldn't afford. He said even it its your first day on the job you can honestly say it just as easily as a seasoned agent could say it. I immediately added it to my treasured key phrases!
I show one property and then insist on an approval letter before going forward.
This is the biggest stumbling block I see today for people to purchase the home of their desires. I will show once if they have not been approved, but I will not show foreclosures or short sales until they have been approved.
Credit guidelines are much tighter today than they were earlier in this decade. Most homebuyers have seen enough headlines to realize this to a degree, but I still find customers who are looking for stated income loans, 80/20 loans or other types of easy financing that was available a few years ago.
Back to educating our clients. They are simply amazed when we tell them that Lending requirements changed more than 600 times in the last two years.
My best lenders who could be "Johnny On The Spot", ask if they can call me back so they can look up all of the changes.
The Pendulum has swung WAY TOO FAR!! Joy